The production side efficiency loss of a tariff is caused by
A)confusion about prices when a tariff is imposed.
B)higher profits gained by foreign producers.
C)the expansion of relative inefficient domestic production.
D)the contraction of domestic consumption.
E)the increase in government revenue.

Question

Quizplus · Accepted Answer

The production side efficiency loss of a tariff is caused by the expansion of relatively inefficient domestic production. When a tariff is imposed, domestic producers are given an advantage over foreign producers because their products are not subject to the extra tax. This may lead to a situation where less efficient domestic producers can increase their output and profits, even though their products are not as cost-effective as those of foreign producers. This leads to an inefficient allocation of resources, as more resources are devoted to producing goods that could be imported more cheaply, and fewer resources are devoted to other more productive activities.

The Production Side Efficiency Loss of a Tariff Is Caused